The Federal Trade Commission possesses the authority to regulate U.S. origin (“Made in USA”) claims under Section 5 of the Federal Trade Commission Act. The FTC Act prohibits unfair or deceptive acts or practices.
Objective advertising claims, including U.S. origin claims, must be truthful and substantiated. The FTC has actual guidelines for making lawful U.S. origin claims in advertisements, product labels, and promotional and marketing materials.
Express v. Implied Claims
In general, the FTC’s policy applies to all products sold in the United States, except for those specifically subject to country-of-origin labeling requirements under other laws. It also applies to both express and implied advertising claims.
“Made in USA” is but one example of an express claim. Implied claims are less obvious and are evaluated by an objective, reasonable person standard. If a representation is likely to convey that a product is of U.S. origin, then the FTCs enforcement policy applies.
Manufacturers and marketers should consult with FTC defense attorneys and consider the overall net impression of advertising content and labels as the use of U.S. flags and the like are likely to communicate a U.S. origin message.
Unqualified U.S. Origin Claims
What is the standard for a product to be called “Made in USA” without qualification?
For a product to be called Made in USA, or claimed to be of domestic origin without qualifications or limits on the claim, the product must be “all or virtually all” made in the U.S.
“All or virtually all” means that all significant parts and processing that go into the product must be of U.S. origin. That is, the product should contain no — or negligible — foreign content.
When a manufacturer or marketer makes an unqualified claim that a product is Made in USA, it should have — and rely on — a “reasonable basis” to support the claim at the time it is made. This means a manufacturer or marketer must possess pre-dissemination competent and reliable evidence to back up the claim that its product is “all or virtually all” made in the U.S.
The FTC considers various factors to determine whether a product is “all or virtually all” made in the U.S. First, the product’s final assembly or processing must take place in the U.S. The FTC then considers other factors, including, but not limited to, how much of the product’s total manufacturing costs can be assigned to U.S. parts and processing, and how far removed any foreign content is from the finished product.
There is no bright line test for what constitutes all or “virtually all” and an experienced FTC defense attorney can assist with this analysis. Not only is the site of final assembly or processing relevant, so are the proportion of U.S. manufacturing costs and remoteness of foreign content.
A product will not meet the “all or virtually all” standard if the cost of a foreign component constitutes a disproportionate percentage of the total cost. Moreover, if the foreign content is a significant component it may not meet the “all or virtually all standard.”
For example, a company produces propane barbecue grills at a plant in Nevada. The product’s major components include the gas valve, burner and aluminum housing, each of which is made in the U.S. The grill’s knobs and tubing are imported from Mexico. An unqualified Made in USA claim is not likely to be deceptive because the knobs and tubing make up a negligible portion of the product’s total manufacturing costs and are insignificant parts of the final product.
Another example, a table lamp is assembled in the U.S. from American-made brass, an American-made Tiffany-style lampshade, and an imported base. The base accounts for a small percent of the total cost of making the lamp. An unqualified Made in USA claim is deceptive for two reasons: The base is not far enough removed in the manufacturing process from the finished product to be of little consequence and it is a significant part of the final product.
Unqualified U.S. origin claims are risky business if not first assessed by an experience FTC defense attorney. Unqualified US origin claim are only permissible when all or virtually all of the product’s components are from the U.S. and all or virtually all of the manufacturing, processing, packaging or assembly took place in the US. Unqualified Made in USA claims are only acceptable if the product contains a negligible amount of foreign content or processing.
In order to avoid unintentionally making an unlawful U.S. origin claim due to foreign component parts, businesses should never assume that a component purchased from a U.S. supplier is U.S. made. Reasonable due diligence and legal compliance work should be conducted with FTC defense attorneys before blindly relying upon representations from suppliers. It is also wise to evaluate the entire manufacturing process to ensure that there is no significant foreign content.
Qualified Made in USA Claims
U.S. origin claims must be adequately qualified if the product does not meet the “all or virtually all” standard.
However, even qualified claims may imply more domestic content than exists. Thus manufacturers and marketers must exercise care when making these claims in order to avoid deception. Avoid qualified claims unless the product has a significant amount of U.S. content or U.S. processing. A qualified Made in USA claim, like an unqualified claim, must be truthful and substantiated.
For example, an exercise treadmill is assembled in the U.S. The assembly represents significant work and constitutes a “substantial transformation” (a term used by the U.S. Customs Service). All of the treadmill’s major parts, including the motor, frame and electronic display, are imported. A few of its incidental parts, such as the handle bar covers, the plastic on/off power key and the treadmill mat, are manufactured in the U.S. These parts, together, account for approximately 3% percent of the total cost of all the parts. Because the value of the U.S.-made parts is negligible compared to the value of all the parts, a claim on the treadmill that it is “Made in USA of U.S. and Imported Parts” is deceptive.
Claims that a particular manufacturing or other process was performed in the U.S. or that a particular part was manufactured in the U.S. must be truthful, substantiated, and clearly refer to the specific process or part, not to the general manufacture of the product, to avoid implying more U.S. content than exists.
FTC guidance provides that manufacturers and marketers should be careful about using general terms, such as “produced,” “created” or “manufactured” in the U.S. as words like these are unlikely to convey a message limited to a particular process. Additional qualification is probably necessary.
Additionally, if a product is of foreign origin (i.e., has been substantially transformed abroad), manufacturers and marketers must be very careful to satisfy Customs’ markings statute and regulations that require such products to be marked with a foreign country of origin. Further, Customs requires the foreign country of origin to be preceded by “Made in,” “Product of,” or words of similar meaning when any city or location that is not the country of origin appears on the product.
Assembled in USA Claims
A product that includes foreign components may be called “Assembled in USA” without qualification when its principal assembly takes place in the U.S. and the assembly is substantial. In order for the “assembly” claim to be valid, the product’s last “substantial transformation” must have occurred in the U.S.
For example, according to FTC guidance, a lawn mower, composed of all domestic parts except for the cable sheathing, flywheel, wheel rims and air filter (15 to 20 percent foreign content) is assembled in the U.S. According to the Commission, an “Assembled in USA”” claim here is appropriate.
Made in USA Investigation Closing Letters
The FTC aggressively polices the dissemination of U.S. origin claims, both from an investigative and an enforcement standpoint. Investigation closing letters are published by the agency, and are instructive. While closing letters do not articulate all of the FTC’s reasons for closing, they often reflect the implementation of compliance programs and other remedial measures.
Always consult with an FTC attorney regarding how to make lawful U.S. origin claims in advertisements and product labels, including when and how claims must be qualified and how U.S. origin claims are affected by foreign origin labeling regulations.
Made in USA Claim Workshop
The Federal Trade Commission recently held a workshop looking at Made in USA claims and the FTC’s guidance and enforcement. Videos and materials are available, here.
Unlike other FTC Act-related matters, the FTC generally engages directly with businesses and FTC defense attorneys to educate and advise on appropriate representations. Warning letters and opportunities to remedy non-compliant conduct are routinely provided. Enforcement actions in this area are generally only initiated in the most extreme circumstances or for other regulatory policy reasons.
The workshop consisted of, without limitation, discussion regarding consumer perception research and the enforcement standards themsevles. Participants urged the FTC to align its standard with customs and international standards to one of “substantial transformation.” The FTC was uged to permit companies to make domestic origin claims when the major manufacturing takes place in the U.S., without focusing upon origin of components or input parts.
Consumer groups remain in favor of the current standard.
Lastly, there was discussion about why consumers perfer Made in USA products, whether the standard should be different depending upon the type of product, and how the standard should be enforced going forward. The FTC expressed that more significant penalties woudl have a more effective deterrent effect.
Read more about the FTC’s enforcement policy relating to U.S. origin claims.
Richard B. Newman is an FTC defense attorney representing digital marketers in advertising substantiation proceedings and investigations conducted by the Federal Trade Commission.
Informational purposes only. Not legal advice.